Thursday, December 14, 2006

If any foreign capital has ever played host to a larger contingent of cabinet-level U.S. economic policy-makers than the one that Treasury Secretary Hank Paulson led this week to Beijing, we are hard-pressed to recall which one it was. In addition to Federal Reserve Chairman Ben Bernanke, Mr. Paulson has been accompanied by Commerce Secretary Carlos Gutierrez, Labor Secretary Elaine Chao, Energy Secretary Samuel Bodman and Health and Human Services Secretary Mike Leavitt. Also making the trip were U.S. Trade Representative Susan Schwab and Environmental Protection Agency Administrator Steve Johnson. A gaggle of newly empowered Democratic committee chairmen remained stateside, eager to debrief these officials on Capitol Hill early next year.

The setting was the inaugural meeting of the twice-yearly U.S. China Strategic Economic Dialogue. This week marks the fifth anniversary of China’s accession to the World Trade Organization. The United States recognized the milestone by releasing a 100-page report declaring that China’s compliance with WTO rules has been “decidedly mixed,” especially regarding China’s relentless pirating of intellectual property (music, movies, software, etc.) The biggest trade-related dispute between the United States and China involves concerns that China has been manipulating the value of its currency, keeping it 20 percent to 40 percent below its fair-market value in order to maximize its export potential.

China announced Monday that its trade surplus for November was $22.9 billion, nearly equal to the $23.8 billion record surplus it achieved in October. The yearly total so far is $156.5 billion, 53 percent higher than all of 2005. On Tuesday, the United States reported that it ran an October trade deficit of $24.4 billion with China. That brought this year’s bilateral deficit total (so far) to $191 billion, a level that guarantees that 2006’s bilateral trade deficit with China will smash last year’s off-the-charts record of $202 billion.

On the currency-manipulation issue, Democratic Rep. Sander Levin of Michigan, who is seeking the chairmanship of the House Ways and Means subcommittee on trade, led 29 of his colleagues in demanding more than two years ago that the trade representative “take action by filing a WTO case against China if it does not immediately eliminate the undervaluation of its currency.” For his part, Mr. Paulson declared the other day that “China could do more to reduce its trade surplus.” He called upon Beijing to “introduce greater flexibility for its currency” and said that “China’s high saving rate is a major contributor to the country’s large global trade surplus.” What Mr. Paulson did not say — but what he undoubtedly knows — is that America’s soaring trade deficit is inextricably linked to its plunging personal saving rate (after averaging 2 percent in 2003 and 2004, it’s been negative six quarters in a row) and the federal government’s record budget deficits (which totaled $1.36 trillion over the past four years). On the subject of trade imbalances, there is more than enough blame to be shared by both nations. Calling China to account without acknowledging America’s need to take corrective action will only invite the cold shoulder from Beijing. And who could blame them?

On the piracy issue, China has run out of time. Instead of accepting yet another promise that would surely be broken like the countless pledges given in the past, the United States should finally file a case with the WTO.

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